• Poynder on Point •The Shooting of Dan WagnerThis candid interview finds the former Dialog CEO still pulling
no punchesby Richard Poynder

It's been over 2 years since Dan Wagner
was forced to sell Dialog and make a reluctant exit from the online industry.
What went wrong and why? Recently, in a bid to find out, I visited the
London offices of Venda, the private company that Wagner now runs.

It's 30 minutes after the final whistle of the World Cup match between
England and Argentina. The good news is that England was victorious. The
bad news, says Dan Wagner (an avid soccer supporter), is that the team's
performance was lackluster. The muffledsounds of inebriated celebration
floating up from the street below, however, suggest that the fans don't
care. It's enough that England won.

As a player in the online game Wagner was certainly not lackluster.
Indeed, he demonstrated a great deal of energy and flair. Nevertheless
he lost. How come? "I got shot by a sniper from the sidelines," he says
simply.

Wagner's story, as he tells it, is always exciting—if a little self-aggrandizing—and
not without some persuasive power. Above all, it is the story of a visionary
iconoclast who sought to shake up an industry that has all too often failed
its users.

Beginning with M.A.I.D.Few in the U.S. knew ofWagner prior to his daring purchase of Dialog
in 1997. In the U.K., by contrast, he was already a household name. He
was portrayed in the media as a flamboyant young entrepreneur who, at the
time of his IPO, outraged London's financial institutions by appearing
in a Donald Duck vest.

Wagner made his industry debut in 1984 at age 21, when he founded the
online company he christened M.A.I.D. (Market Analysis and Information
Database). Youth aside, this was no mean feat. As industry observer Martin
White points out: "Until then, online information in the U.K. was very
news-oriented, but Dan began offering much more market analysis information
with a lot of added value. So M.A.I.D. was a very visionary concept, and
the way Dan sold it was spot on. As such, he was embraced as someone who
was going to be a British savior in an industry dominated by Americans."

Certainly M.A.I.D. was soon posing a threat to established local players
like Reuters Textline and FT Profile, the online business of the Financial
Times. This achievement was aided by Wagner's ability to attract vivid
media coverage—which often succeeded in annoying his competitors in the
process.

In 1992, however, Wagner made what he now believes was his first mistake,
one that was to return to haunt him some years later. Angry that FT Profile
had consistently refused to allow him to distribute content from the Financial
Times, he complained to the Monopolies and Mergers Commission (MMC),
the U.K. antitrust authority.

Wagner still believes he had a genuine case, but now characterizes his
complaint as a pointless gesture that achieved little more than to earn
him a powerful enemy. Although the MMC agreed that the FT was acting in
an anti-competitive manner, Wagner claims, the then president of the Board
of Trade, Michael Heseltine, refused to take action. "It was politics,"
he says. "Heseltine threw the MMC report out because at the time the Conservative
Government was in a head-to-head with the Financial Times, and they
needed the support of the FT more than they cared about M.A.I.D."

But if complaining to the MMC was to unnecessarily anger a competitor,
the decision in 1994 to float M.A.I.D. on the stock exchange was to place
a gun in his enemies' hands, he says. "What I failed to realize—which I
should have known—is that the people who control the market perception
of public companies are the media and the analysts. And when it comes to
the U.K. media the two most powerful in this area are Reuters and the FT—two
companies that I had riled badly over the years. So it was only a matter
of time before they would be able to get their own back."

Thus it was, he says, that when later he was struggling to turn Dialog
around, the Financial Times chose to get its own back by writing
an editorial in which his new company was given the damning sobriquet "Dial-a-Dog."
The insult still visibly rankles and was, he says, the catalyst to his
eventual decision to throw in the towel at Dialog. "If we had still been
a private company it wouldn't have mattered. But as a public company the
comment put us into a sentiment-driven downward spiral."

But that was later. During the early, heady days of M.A.I.D., Wagner
seemed unstoppable and increasingly wealthy. After his IPO, his personal
fortune climbed to over $62 million, and he began to demonstrate an insatiable
appetite for fast cars and increasingly controversial press briefings.
He made ever more grandiose claims about M.A.I.D. and dangerously taunted
his competitors.

When he wasn't talking to the press he was answering calls from lovelorn
suitors desperate to buy M.A.I.D. "We were being courted by everybody,"
he boasts. "Dun & Bradstreet offered $5 million for the company back
in 1986, when we had only been going for a year and a half. Later, Reed
Elsevier approached us, and Reuters pursued us for some time. But I always
pushed them off because I was passionate and visionary about where my business
was going."

A Bit NaiveSome might argue that Wagner's fundamental mistake was his November
1997 purchase of Dialog. While initially seemingto confirm him as the British
savior some had predicted, many now portray it as his nemesis. Not so,
says Wagner. "It was simply a very good idea that had the rug pulled out
from underneath it."

Certainly it didn't help that he had to borrow $260 million in order
to pay the $420 million price tag Knight Ridder demanded. Does he feel
he overpaid? "We paid a full price," he answers. "But we had to because
we were not a good covenant. Wewere a dark horse that had to raise money
from the markets, so we had to pay a premium." He adds with a bitter laugh:
"Actually, the total cost was $460 million. We had to pay $40 million in
fees."

Did that $40 million buy him good advice? "I don't want to criticize,"
he says tentatively, his eyes darting briefly toward the tape recorder
on the desk. But then he sits back with a smile. "Well I don't supposeit
really matters now. No, I don't think we got good advice. We were advised
not to borrow all the money in high-yield debt [aka junk bonds], but also
to take some 5-year senior debt. In my view we should have taken it all
in high yield. While we would have paid more interest, we wouldn't have
had to worry about it for 10 years—so long as we kept on paying."

By opting to take some senior debt, he adds, he left himself dangerously
vulnerable to market sentiment and put himself in the cross hairs of the
sniper. The more so, he adds, since his advisors failed to negotiate a
tight contract. "In going for seniordebt we should have made damn sure
we closed all the loopholes, but I guess I was a bit naive, and that my
advisers were equally naive—or maybe they hadn't done this sort of thing
before. Anyway, since the contract wasn't very tight, when the markets
turned against us the banks were able to use all sorts of levers on me
and subject me to constant harassment. By the end they were driving me
completely bananas."

The point, emphasizes Wagner, is that there was no business reason for
his failureat Dialog. He was simply a victim of negative sentiment created
by hostile press commentary—much of it generated by his competitors—and
a consequent loss of nerveon the part of the banks.

Asleep at the DeskBut the deal was done, and Wagner embarked on the challenge of turning
Dialog around. In doing so, however, he immediately attracted the wrath
of the online industry.

"In terms of employees, his handling of the move from California to
North Carolina was particularly notorious," comments one U.S.-based observer.
"Not only did Dialog lose much of its valuable and knowledgeable staff
in the relocation, but longtime employees who couldn't, or wouldn't, move
lost their severance benefits."

On the details of the layoffs, Wagner is uncharacteristically vague.
"I really don't think it's likely that anyone lost their severance money.
Not in California. California is extremely good for the employee and extremely
bad for the employer."

On the principle, however, he is robust in his own defense. When he
took over the company, he says, he found it in an appalling condition.
"If you had walked into Dialog's head office at that time you wouldn't
have believed it. It was like the company was dead, and many of the employees
were ineffectual and lazy," he says forcefully. "I reduced the head count
from 1,400 to about 1,000, but if I had my time again I would be far more
aggressive, and I would get rid of a lot more people on day one than I
did."

It was so bad, adds Wagner, that some of the staff were literally asleep
on the job. He recounts how, for instance, he attended a human resources
meeting in which a manager was complaining that he had to constantly go
up to the desk of one of the employees and shake him awake. "I sat there
and thought, 'Why the hell hasn't this guy been fired long ago?'"

After a string of such incidents—including discovering that employees
often spent entire half-days watching soccer in the local bar rather than
sitting at their desks, and that senior management took every Friday afternoon
off to play golf—he concluded that relocation was essential.

"I tried to make it work in California—for 9 months. But the people
in Mountain View were stuck in their ways, and they weren't up for the
challenge that was ahead of us," he says. "There is a much more go-getting
atmosphere on the East Coast, however, and I felt it was important to provide
a change of scene."

He adds: "Did we lose good people in the process? Did we lose intelligent
people?Yes, I think we did. Did I need them? No. I discovered, for instance,
that there were five 'evangelists' being paid $250,000a year to fly around
the States and talk about intellectual property. You don't need a professor
in intellectual property to sell an online product. What you need is a
good salesman!"

A Clash of CulturesFor users, Wagner's most controversial decision was to introduce the
infamous DialUnit, which was aimed at moving away from connect-time pricing
to unit-based system resource pricing. Wagner is unrepentant about this,
too. "I knew it was going to cause a stink, but it had to be done."

It was, nonetheless, a slap in the face to information professionals,
Dialog's primary customers. Did that not make him pause for thought? Wagner
glances again at the tape recorder. "I wouldn't have said this when I was
running the company, but our eyes were always on the end-user. Attracting
them was the only way Dialog would have survived. That meant we had to
penalize the 'super searchers' who were taking advantage of us."

Taking advantage? "They were running really complex computations for
as little as $3, when the cost of the processing involved was enormous,"
he explains. "To do this they were bypassing the traditional search process,
while other customers were having to pay for that process. When we introduced
DialUnits the super searchers said, 'Hell, things that would have cost
me $3 will now cost me $150.' Naturally this really upset them."

However, he adds, there was no alternative. "Connect-time charging was
bleeding the business of $50 million in revenue. It was just common sense.
Which is why Thomson hasn't got rid of DialUnits. Nor will they."

What the DialUnits controversy brought to a head was an irreconcilable
clash of cultures between Wagner and Dialog users. While Wagner viewed
Dialog as a business gone to seed and in need of shaking up, many users
saw the company in a very different light. "My own impression is that Dan
had not a clue as to the intangible and intellectual value that he was
really acquiring when he bought Dialog," comments one of the super searchers,
on condition of anonymity. "He was unprepared for users who felt that Dialog
was a sort of 'public trust': a resource that is rich and deep, and to
be preserved rather than exploited."

"That stuff all made me sick," snaps Wagner. "I had to be a bit more
diplomatic at the time, but what a lot of nonsense. There is no public
trust in Dialog. Dialog is a commercial service that provides information
to customers. Nobody thinks LexisNexis is a public trust; nobody thinks
of Reuters as a public trust. Simply because the service is indispensable
for many people does notmean that it shouldn't be commercialized."

To his annoyance, Wagner discovered there was also an internal clash
of cultures. One moreover that he believed had split the company down the
middle and laid at the heart of many of the problems that had been holding
it back. In short, when Knight Ridder had acquired DataStar it had failed
to successfully integrate it with Dialog. "When I arrived, DataStar was
here, and over there was Dialog—and never the twain shall meet. I had never
seen anything so ridiculous in my life."

Was that then the reason for proposing the closure of DataStar? Wagner
hesitates, removes his wedding ring and spins it on the desk. Then he looks
up. "I was misled," he says. "I was given a view that absorbing DataStar
into the Dialog infrastructure was the best thing to do. It turned out
though that that was a load of [b.s.]. Because the DataStar system was
actually very, very good, and their technical people were much more dynamic
than the Dialog people. I didn't realize that until later, which is why
I reversed the decision."

In short, says Wagner, he was duped by Dialog staff intent on a final
rout of the DataStar camp. "They thought, 'Great, we've won now, because
we have a listening ear in management.'"

Was there perhaps also a clash of cultures between the British team
who arrived with Wagner and the incumbent American employees? "Absolutely,"
says Wagner. "There was no question about it."

This too was White's impression. "Dan was dealing with people in the
U.S. who had seen Dialog get into a real mess and then been bought by Knight
Ridder. Then it was rescued by this guy from the U.K.—and I think the Dialog
people would simply not play along with it."

Looking for a Creative SolutionThis debilitating internal conflict was the last thing Wagner needed.
"By 1999 I was being beaten up on all sides," he says. "I was being beaten
up by the customer base over DialUnits; I was being harassed by the banks;
and the shareholders were complaining that the share price was slipping
away."

Nevertheless, he says, he was not in a mood to give up. "We had a lovely
business that I was trying to get off the ground, and my intention was
to mow through all of the opposition, irrespective of what people thought."

What he was not able to ignore, however, was the growing panic at the
banks, alarmed at the negative publicity Dialog was attracting. "When Dial-a-Dog
came out they called me in for a meeting, and they started to say, 'You
know, we would really quite like to have our money back.'"

His first thought, however, was not to sell, but to come up with a creative
solution that would remove the banks from the equation. "Initially, we
tried to organize a merger with Bridge Information Systems [the real-time
information company subsequently acquired by Reuters]. We wanted to do
something clever to take the debt out, while at the same time enhance the
position of the company."

When that failed, Wagner approached a number of well-positioned dot-coms,
including LookSmart, the search engine, and Verticalnet. "These guys had
huge valuations and could have issued $100 million of stock without blinking
their eyes. I thought, 'Let them take us out with their paper, and then
we can work together to enhance the position.' They really should have
done a deal with us, but they were worried about the Dial-a-Dog dragging
them down."

All smart options exhausted, Wagner made contact with Thomson. "I thought:
'Hell, my life is too short. Let Thomson have it.' So we spent 2 days in
a room; we couldn't leave the room. I remember seeing the sun come up."

In early 2000 Thomson agreed to pay $275 million for the bulk of Dialog.As
part of the deal it also agreed to invest $25 million in Dialog's new business,
Bright Station.

A Fatal FlawAs told by Wagner, his is a story of a dynamic entrepreneur who made
the mistake of alienating powerful competitors. Then, when he became vulnerable,
they conspired in his downfall.

But like a Shakespearean hero, Wagner also has a fatal flaw in his character.
Namely, a tendency to always promise more than he can deliver. It was this
flaw perhaps that proved the ultimate arbiter of his fate at Dialog. "I
was very aggressive about what we would do with Dialog," he concedes. "After
all, the company was bleeding; it was dying on its feet. So I said, 'We
are going to turn this thing around from a minus-10-percent month-on-month
decline in revenues to a plus-10-percent position in the first year.' The
other thing I said was that we would make it profitable within 3 months
and take out 25 percent of the costs."

In reality, he adds, he achieved a plus-3-percent growth in the first
year and took out 33 percent of the costs. "So we showed confidence we
could do it, and actually we did a very good job from a commercial point
of view. We turned Dialog around from a loss-making business, and M.A.I.D.
from a loss-making position, to plus $65 million in profits in 1 year.
You can't say that is Dial-a-Dog, but that is what we were named, and as
a consequence the share price never again reflected the value of the business."

One might question Wagner's upbeat portrayal of the financial situation
at Dialog. In June 1999, for instance, the U.K.'s Observer newspaper
reported that quarterly sales at Dialog had fallen from $70.3 million at
the start of 1998 to less than $62.5 million by the end. And the Electronic
Information Report commented that the company had experienced a sales
drop of 4.7 percent in the first quarter of 1999.

The point, however, is that by over-promising what he could deliver
with Dialog, Wagner played into the hands of his critics. As he himself
now says: "If I had made the promise that we would break evenin the first
year at Dialog and in year 2 growsome, it would have been better. But as
soon as we missed our target, Reuters and the FT just piled in."

What is certain is that every time Wagner's financial results undershot
his forecast his credibility took a knock—and one thing bankers and investors
rarely forgive is a failure to meet financial targets. The tragedy is that
if the numbers had come in as Wagner promised, the banks and the investors
may have ignored the bad press—and the sniper would have missed the target.

Bad TimingThe one area in which plain bad luck played a hand in Wagner's fate,
perhaps, was his timing. Thus, while he had all the qualifications for
being a dot-com entrepreneur—youth, pizazz, brashness, outrageous vest—his
IPO predated the dot-com boom.As a consequence, the markets always judged
Wagner—and Dialog—by old-economy standards.Among other things, this meant
that Dialog was never able to attract the high valuation that many Internet
businesses did.

"The equity markets were very down on us and very buoyant on dot-coms,
which we found difficult to understand," says Wagner. "We had revenues,
we had profits, and we had debt. True, the dot-coms generally had no debts,
but unlike us they had no revenues, and they had no profits. Consequently,
while we were the largest company on the techMARK [the U.K.'s NASDAQ],
we weren't valued anything like the others."

Had Dialog been able to command the valuation levels afforded to the
dot-coms, says a disgruntled Wagner, he would have been able to pay the
banks off by issuing more equity. The story, he suggests, would then have
been very different.

The timing of his exit from the industry was equally unpropitious. Taking
the knowledge management and e-commerce divisions originally developed
at M.A.I.D. with him into Bright Station, Wagner's intention was to reinvent
himself as the CEO of a new business incubator. "But 2 weeks after I did
the deal the techMARK crashed, so my timing on sentiment was wrong there
as well!"

In the wake of the dot-com collapse the KM business, rebranded SmartLogik,
struggled to survive, and earlier this year its assets were acquired by
APR—with Wagner's remaining 8 percent investment in the company disappearing
in a puff of smoke. All that's left of the Wagner empire today, therefore,
is the e-commerce technology originally branded Sparza, which is now trading
as a private company called Venda.

For all that, Wagner says he has few regrets. With a surprise edge of
emotion in his voice, however, he adds: "The biggest regret I had with
Dialog was how I let down Roger Summit [the founder of Dialog, whom Wagner
had brought back to the company as chairman emeritus]. Roger was a visionary,
and we got on extremely well."

The Wagner EpisodeWagner spent 16 years in the online business and just over 2 as CEO
of Dialog. What was his contribution to the industry? "I gave it a good
jolt in the neck," he says confidently.

In fact, rather than viewing his time at Dialog as a failure, Wagner
insists that he performed a very important function. "Knight Ridder couldn't
turn it around. It needed me to go in there and shake it up. I don't thinkthey
could have done it any other way, since it had become so entrenched that
it needed to be pulled kicking and screaming out of its complacency."

For this reason, he adds, Thomson should be grateful to him. "I did
them a good favor. I sorted out DialUnits, I brought the company back from
the brink, and I stepped down. I took a huge problem away from that business,
one that was killing it and one that no one was prepared to tackle head-on."

The irony, he implies, is that his legacy is now being squandered. Specifically,
he charges Thomson with failing to build on the foundations he laid for
broadening its user base, most notably by developing the end-user product
DialogSelect. "DialogSelect was very innovative, but Thomson hasn't developed
it; it is exactly the same as when I had it. So is Profound [a former M.A.I.D.
product]. To be quite frank, Thomson hasn't done a lot with Dialog since
they bought it."

He adds, "My view is that at some point Dialog will simply be absorbed
somewhere into Thomson's content business.After all, 40 percent of the
content on Dialog is Thomson's anyway." Such a scenario would presumably
mean that Dialog would become little more than a technology platform for
Thomson content. What price then the public trust that users so castigated
Wagner for trying to exploit?

How does Thomson respond to Wagner's comments? We can't say, since the
company declined to be involved in any
article dealing with what its London PR company referred to as "the
Wagner episode." Indeed, the very idea of talking to Wagner was characterized
as an unhelpful "raking up of the past."

Speaking to Wagner one is struck with how little the Dialog debacle
appears to have changed him. True, he has dyed his hair blonde and moved
six blocks up from his former London base in Leicester Square. But the
ambition and the big ideas are still very much present.Ask him, for instance,
about Venda, and he immediately launches into the familiar Wagner sales
pitch. "We provide machines, hosting, and bandwidth. We integrate with
your internal inventory systems and warehouse systems, and we build an
infrastructure that allows you to manage your entire store on the Web,"
he says, pushing across copies of recent press clippings about the company.
"In fact, we're going to shake up the whole e-commerce industry."

He is, he says, very glad to be running a private company again. "I
am enjoying myself enormously. I don't have a lot of people banging on
the door, so I can just get on with running the business."

It is hard not to conclude that, for Wagner, playing the game is ultimately
more important than winning—particularly whenit is done with flair. As
London-based industry observer David Worlock commented to
Information
World Review at the time of the Thomson acquisition: "Dan was a great
punter who pushed the envelope of opportunity as far as it would go. I
admire his spirit and his sense of play."

Perhaps the greatest tragedy was that Wagner found himself operating
in an industry that has come to despise visionary individuals and grown
wary of big ideas. "I now realize that I was a target looking to be shot
down," concludes Wagner, "and eventually I did get shot down."

All that remains to be argued over is the extent to which Wagner conspired
in his own shooting.

As the interview comes to an end the street grows quieter. There is
just the occasional whoop from a lone fan wending his unsteady way home.
Two weeks later, of course, England was knocked out of the World Cup by
Brazil. Undefeated in spirit, the fans are already looking to the 2006
tournament.

Wagner too has his eye on the next chance. In fact, he says with a quiet
smile, it may even mean a return to the online industry. "You never know,
I may be back. After all, I wouldn't have gained all this experience over
the years to just disappear into the background, would I? What I can say
for certain, however, is that I will never ever run a public company again."

Is there an issue of relevance to the information industry that you
would like examined, a story you feel should be told, or an industry player
you would like to see interviewed? Please send your suggestions to Richard
Poynder at the e-mail address below.

Richard Poynder is a U.K.-based freelance journalist who specializes
in intellectual property and the information industry. He writes for a
number of information publications, and contributes regularly to the London
Financial
Times. His e-mail address is richard.poynder@journalist.co.uk.